Horror Story or Happy Ending? Embracing Change in the Power Sector

For fans of wonky energy reports, Disruptive Challenges is the runaway blockbuster of 2013. It’s author, Peter Kind crafted a utility horror story worthy of Steven King, describing a death spiral caused by the seemingly innocuous solar panel.

This week, Kind addressed an audience of attorneys and others brought together by Energy Biz in Kansas City.

Mr. Kind summarized the take-aways from his report for the Edison Electric Institute, which will be quite familiar to readers of America’s Power Plan. GDP is unlikely to grow as quickly as it has in the past, Americans are moving from the rustbelt to the sunbelt, and electricity demand growth has been slowing or even contracting at the same time we need more capital investment to update our infrastructure. At the same time, we have only seen a tiny fraction of the potential for new energy efficiency, distributed generation, and demand response technologies, which are also poised to erode utility market share.

Electricity growth rates (EIA)

Mr. Kind displayed this chart of declining electricity demand growth in the United States. The vertical axis represents average year-over-year demand growth as a percentage. (Source: US Energy Information Administration)

All of these pressures point to more competition in the electric sector. Kind pointed out that utilities have several unique advantages to be strong competitors: access to low-cost capital, skills in building large-scale infrastructure projects, and experience interacting with a broad customer base. But new entrants also have assets, including the flexibility to offer innovative new technologies, products, and financing to their customers.

But the most interesting thing about Mr. Kind’s update is how his thinking has changed since he released the report. As a banker by trade, he wrote the report with the intention of calling out the need for regulatory changes to keep utilities’ balance sheets strong. Over the past year, though, he has come to realize the inevitability of technological change—neither large utilities nor state regulators can stop the wave of innovation in energy efficiency, demand response, and clean energy. It is time to look for bold solutions that will help us manage the transformation underway.

As a result, he calls on utilities to embrace the unstoppable change and look for opportunities within it. “We need to move to a new paradigm where we need to think about deploying efficiency solutions as a way to optimize the customer’s value being received, [with] the utility being compensated fairly for the value it’s providing for those customers.”

We couldn’t agree more. With the right policies and planning, the story of a changing energy landscape can have a happy ending.

Sonia, you’ve also relabeled the graph on the EIA website “Electricity Demand” when the graph represents growth in electricity demand, and shows that demand has only twice briefly declined since 1950. For people who have any interest in honesty and accuracy, I’ve provided a screenshot from eia.gov.

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Sonia Aggarwal

December 12, 2013 17:33

Totally agree with you! Thank you for pointing this out. I had pulled this chart from Mr. Kind’s presentation slides, and the original post of this article had a caption under this chart that explained that it’s growth in energy demand. Here is what the caption should read: “Mr. Kind displayed this chart of declining electricity demand growth in the United States. The vertical axis represents average year-over-year demand growth as a percentage.”Here is the link to the original post with the caption – apologies for any confusion this might have caused:http://americaspowerplan.com/technology-change-inevitable-opportunity-lies-in-embracing-change/

Sonia, you mischaracterize Peter Kind’s remarks with:Over the past year, though, he has come to realize the inevitability of technological change—neither large utilities nor state regulators can stop the wave of innovation in energy efficiency, demand response, and clean energy.In Disruptive Challenges, Kind never implies that distributed generation can be stopped or that it should be. Similarly, you state:But the most interesting thing about Mr. Kind’s update is how his thinking has changed since he released the report. As a banker by trade, he wrote the report with the intention of calling out the need for regulatory changes to keep utilities’ balance sheets strong.Kind reinforced that opinion with his comments in Kansas City:Tariff reform makes sense. It would allow for the utility to recover the costs that are being covered now on a volume metric basis. It tries to recover costs from those who are either benefitting from less consumption or access to the grid.Though it doesn’t make for the sensationalistic headlines which buoy the renewables movement, let’s agree that accuracy should prevail.

Arizon’a solar power deployment is a great example. Their utility APS was agressive about deploying large amounts of solar PV, and they were able to do it at less than half the cost of residential rooftop solar (see SEIA data). The residential solar industry lobbyists wanted regulators to continue their net-meeting rules, which creates the false impression that residential solar is more attractive than utility scale, and shifts the added cost away from the system owner while requiring the utility to provide free energy storage and grid service.Arizona regulators recognized the impending horror story, and committed to address the issue fully in their next rate case (for 2015), but for 2014, have added a fixed monthy fee for home solar systems, proportional to the nameplate output.